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Here’s how to calculate your budget after your working years: Most retirement plans assume you’ll need the same income at age 80 that you needed at age 70.
This is according to blog founder Andrew Lokenath expert in financeThat said, this creates two problems – overspending in early retirement or accumulating money you never use. He described both results as “stinking”.
“A better framework is to look at retirement in three phases,” he said. “Ages 65 to 74 are high spend. Age 75 to 84 are moderate spend. Age 85 and older are low spend. Adjust your withdrawal strategy accordingly.”
That said, what’s the difference between a 70-year-old’s middle-class retirement budget and an 80-year-old’s?
planning for retirement budget
At age 70, middle-class retirees spend about $5,400 monthly or $65,000 annually, according to Lokenath, who noted that this roughly matches spending at age 65 because you’re still in active retirement mode. Major expenses remain constant.
According to Lokenath, at age 80, monthly expenses drop to about $3,500 to $4,300. This is a 19% to 34% reduction by age 70. He said the decline accelerates after age 75 as mobility decreases and lifestyle becomes simpler.
“Here’s the thing most financial advisors won’t tell you: The decline in spending from 70 to 80 is more dramatic than in any other decade of retirement,” Lokenath said. “People assume health care costs will rise. Wrong. Everything else falls so rapidly that overall spending goes down.”
Retirement Budget at Age 70 and 80
Take a look at what Lokenath said about the expected monthly budget for ages 70 and 80, based on his work on Wall Street and with clients.
Monthly budget of a 70-year-old middle-class retiree (total $5,400):
- Accommodation: $1,850
- Transportation: $900
- Healthcare: $660
- Meal: $610
- Entertainment: $290
- Other: $1,090
Monthly budget of an 80-year-old middle-class retiree (total $3,900):
- Accommodation: $1,500
- Healthcare: $700
- Transportation: $550
- Meal: $520
- Entertainment: $180
- Other: $450
According to Lokenath, the math shows that total expenses have been reduced by 28%. There was a 39% decline in transportation, a 38% decline in entertainment, a 19% decline in accommodation, and a 15% decline in food. He said only healthcare has seen a nominal growth of 6%.
Considering long-term care
Lokenath issued a warning that the decline in spending assumes you avoid senior living homes or assisted living homes.
“Those facilities cost over $5,500 a month and blow the budget,” he said. “If you enter long-term care, expect expenses to increase by 40% to 100%. That’s why I tell clients to plan separately for this scenario.”